ConocoPhillips ( COP ) recently announced that it will be investing in a joint venture with Origin Energy and Sinopec by purchasing a 42.5% stake in the Australia Pacific LNG project. The project is estimated to have a gross capital expense of $20 billion with a peak capacity of 115-120 million barrels of oil equivalent of natural gas. Conoco will soon split to create the largest standalone oil exploration & production company. It competes with other vertically integrated players such as Exxon Mobil ( XOM ), Chevron ( CVX ), BP ( BP ) and independent oil firms such as Anadarko Petroleum ( APC ).
We have a $75 price estimate for ConocoPhillips which is almost 15% ahead of its current market price.
LNG Demand from China Grows
Research firm Wood Mackenzie estimates that China's demand for natural gas may rise to 43 billion cubic feet a day (bcf/d) by 2030 from the present 9 bcf/d. GDP growth as well as the increasing use of natural gas as an alternative to oil for industrial and residential use will support this demand growth.
The sharp increase in Chinese gas consumption has resulted in many LNG suppliers with Australian operations, such as Chevron and BG Group, ramping up capacity. A report by Deloitte estimates that LNG projects worth $274 billion are either being planned or are under construction in Australia.
Australia Pacific LNG, which is expected to start production in 2015, already has binding purchase agreements with China Petroleum & Chemical Corporation (Sinopec Corp.) for 4.3 million tonnes per annum (MTPA). The entire project is expected to have a gross capacity of 9.0 MTPA.
ConocoPhillips aims to triple its assets in Australia over the next ten years.This joint venture is an important step as it gives Conoco access to Australia Pacific's 24 trillion cubic feet of coal seam gas (CSG) resources and will consolidate Conoco's position as the world's largest producer of CSG.
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